nep-sea New Economics Papers
on South East Asia
Issue of 2014‒06‒02
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Asian Monetary Integration : A Japanese Perspective By Masahiro Kawai
  2. Never Say Never: Commentary on a Policymaker’s Reflections By Obstfeld, Maurice
  3. Mapping Crisis-Era Protectionism in the Asia-Pacific Region By Evenett, Simon J
  4. Trade linkages and the globalisation of inflation in Asia and the Pacific By Auer, Raphael; Mehrotra, Aaron
  5. The nature of innovative activity and the protection of intellectual property: a post TRIPS perspective from Asia By Kamal Saggi; Difei Geng
  6. Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam By Bai, Jie; Jayachandran, Seema; Malesky, Edmund J.; Olken, Benjamin
  7. Rapid Appraisal of the State of Competition in the Rice Value Chain By Dela Pena, Beulah
  8. Unemployment Insurance, Job Search and Informal Employment By David Margolis; Lucas Navarro; David A. Robalino
  9. Assessing Credit Risk in Money Market Fund Portfolios By Collins, Sean; Gallagher, Emily
  10. Technology life cycle and specialization patterns of latecomer countries: The case of the semiconductor industry By Triulzi G.
  11. The Benefits and Costs of Renminbi Internationalization By Zhang, Liqing; Tao, Kunyu
  12. Are cities the new growth escalator ? By Moretti, Enrico
  13. No-Bubble Condition: Model-free Tests in Housing Markets By Stefano Giglio; Matteo Maggiori; Johannes Stroebel
  14. Entrepreneurship, public policy, and cities By Lerner, Josh
  15. Monetary Policy and Natural Disasters: An Extension and Simulation Analysis in the Framework of New Keynesian Macroeconomic Model By Mitsuhiro Okano

  1. By: Masahiro Kawai (Asian Development Bank Institute (ADBI))
    Abstract: This paper discusses Japan’s strategy for Asian monetary integration. It argues that Japan faces three major policy challenges when promoting intraregional exchange rate stability. First, there must be some convergence of exchange rate regimes in East Asia, and the most realistic option is for the region’s emerging economies to adopt similar managed floating regimes—rather than a peg to an external currency. This requires major emerging economies—particularly the People’s Republic of China (PRC)—to move to a more flexible regime vis-à-vis the US dollar. Second, given the limited degree of the yen’s internationalization and the lack of the renminbi’s (or the prospect of its rapid) full convertibility, it is in the interest of East Asia to create a regional monetary anchor through a combination of some form of national inflation targeting and a currency basket system. Emerging economies in the region need to find a suitable currency basket for their exchange rate target, such as a special drawing rights-plus (SDR+) currency basket—i.e., a basket of the SDR and emerging East Asian currencies. Third, if the creation of a stable regional monetary zone is desirable, the region must have a country or countries assuming a leadership role in this endeavor. There is no question that Japan and the PRC are such potential leaders, and the two countries need to collaborate closely with each other. To assume a leadership role, together with the PRC, in creating a stable monetary zone in Asia, Japan needs to make significant efforts at the national and regional levels and further strengthen financial cooperation. Practical steps that Japan could take include (i) restoring sustained economic growth through Abenomics; (ii) transforming Tokyo into a globally competitive international financial center; (iii) further strengthening regional economic and financial surveillance (Economic Review and Policy Dialogue and ASEAN+3 Macroeconomic Research Office) and regional financial safety nets (Chiang Mai Initiative Multilateralization) and creation of an Asian currency unit index; and (iv) launching serious policy discussions focusing on exchange rate issues to achieve intraregional exchange rate stability.
    Keywords: Asian monetary integration, Japan, currency, exchange rate regime, East Asia, SDR, currency basket, monetary zone, PRC, Chiang Mai
    JEL: F31 F32 F33 F42
    Date: 2014–04
  2. By: Obstfeld, Maurice
    Abstract: Stanley Fischer is a rarity among economic policymakers. He came to the policy world as an internationally recognized intellectual leader on macroeconomic theory and policy. He confronted numerous emerging market crises, including the globally systemic Asian crisis, as the IMF’s First Deputy Managing Director from September 1994 to August 2001. And then, as governor of an emerging economy’s central bank starting in May 2005, he decided the monetary responses to the worldwide crisis of 2008-09 and its aftershocks. Fischer’s unpublished Robbins Lectures, delivered at the LSE late in 2001, drew lessons from his service at the IMF. Did emerging markets follow up on those lessons, and did their preparations help them weather the storm of 2008-09? How have economists’ views, and Fischer’s, changed as a result of the global financial crisis? In this paper I propose answers to these questions, focusing on the experiences of three Asian crisis countries, Indonesia, Korea, and Thailand.
    Keywords: Asian crisis; capital controls; exchange rate regime; financial crises; foreign exchange intervention; macro-prudential regulation; Stanley Fischer; transparency
    JEL: E44 E63 F32 F34 F36 G01 G15
    Date: 2014–02
  3. By: Evenett, Simon J
    Abstract: This paper provides an account of the resort in recent years by governments in the Asia Pacific region to discrimination against foreign commercial interests. As in previous systemic economic crises, policymakers altered the mix of discriminatory policies employed. This time around governments of higher income economies in the region frequently softened the budget constraints of firms, offering a range of financial incentives that went beyond high-profile bank sector bailouts. Meanwhile, many developing countries in the Asia Pacific relied more on traditional forms of protectionism. The result is a more fragmented set of markets in the Asia Pacific region than before the crisis.
    JEL: F13 F53
    Date: 2013–12
  4. By: Auer, Raphael; Mehrotra, Aaron
    Abstract: Some observers argue that increased real integration has led to greater co-movement of prices internationally. We examine the evidence for cross-border price spillovers among economies participating in the pan-Asian cross-border production networks. Starting with country-level data, we find that both producer price and consumer price inflation rates move more closely together between those Asian economies that trade more with one another, ie that share a higher degree of trade intensity. Next, using a novel data set based on the World Input-Output Database (WIOD), we examine the importance of the supply chain for cross-border price spillovers at the sectoral level. We document the increasing importance of imported intermediate inputs for economies in the Asia-Pacific region and examine the impact on domestic producer prices of changes in costs of imported intermediate inputs. Our results suggest that real integration through the supply chain matters for domestic price dynamics in the Asia-Pacific region.
    Keywords: Asian manufacturing supply chain; globalisation; inflation; price spillovers; supply chain
    JEL: E31 F14 F15 F4
    Date: 2014–04
  5. By: Kamal Saggi (Vanderbilt University); Difei Geng (Vanderbilt University)
    Abstract: This paper examines trends in innovative activity in several major Asian countries during 1997-2011 as measured by their filings and grants of various types of intellectual property (IP). By almost all measures, there has been a remarkable increase in innovative activity in China. In fact, in 2011 China accounted for roughly 25% of global patent applications. However, several indirect measures suggest that the quality of this newly created Chinese IP is not (yet) world class. For example, relative to residents of other major Asian countries and the United States, Chinese residents tend to file IP applications in foreign markets at a much lower rate. Similarly, the ratio of royalty payments earned by Chinese residents to the number of patents granted to them is fairly low by international standards. Finally, the ratio of patent to utility model applications (typically granted for relatively minor innovations) in China is also relatively small.
    Keywords: innovation, protection of intellectual property, patents, trademarks, industrial designs, TRIPS, Asia
    JEL: O3 O5
    Date: 2014–05–27
  6. By: Bai, Jie; Jayachandran, Seema; Malesky, Edmund J.; Olken, Benjamin
    Abstract: Government corruption is more prevalent in poor countries than in rich countries. This paper uses cross-industry heterogeneity in growth rates within Vietnam to test empirically whether growth leads to lower corruption. We find that it does. We begin by developing a model of government officials' choice of how much bribe money to extract from firms that is based on the notion of inter-regional tax competition, and consider how officials' choices change as the economy grows. We show that economic growth is predicted to decrease the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms will move elsewhere. This effect is dampened if firms are less mobile. Our empirical analysis uses survey data collected from over 13,000 Vietnamese firms between 2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find, first, that firm growth indeed causes a decrease in bribe extraction. Second, this pattern is particularly true for firms with strong land rights and those with operations in multiple provinces, consistent with these firms being more mobile. Our results suggest that as poor countries grow, corruption could subside
    Keywords: corruption; economic growth
    JEL: D73 O43
    Date: 2013–10
  7. By: Dela Pena, Beulah
    Abstract: The rapid appraisal is mainly based on the interview of select players in various levels of the palay/rice value chain from Pangasinan and Nueva Ecija to Metro Manila. It finds that the paddy and rice supply chain is multilayered with many competing players in each layer with no evidence of any cartel-like behavior in the areas studied. Margins are limited to 2 percent or less of raw materials at all levels before retail. Profits are enhanced by volume, fast turnover of stocks, integration of operations across levels, and investments for quality consistency. The greatest threats to current players are weather risks and continuing tight local paddy supplies that spawn greater competition and increase management costs. The increased costs also highlight the lower cost option of bringing in foreign rice, which given government quantitative restrictions on rice imports, manifests in rampant smuggling.
    Keywords: competition, rice sector, Philippines, paddy, supply chain, rice value chain
    Date: 2014
  8. By: David Margolis (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, IZA - Institute for the Study of Labor, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Forschungsinstitut zur Zukunft der Arbeit (Institute for the Study of Labor) - Bonn Universität - University of Bonn, Paris School of Economics - Université Paris I - Panthéon-Sorbonne); Lucas Navarro (ILADES - Universidad Alberto Hurtado); David A. Robalino (Social Protection and Labor Sector, Human Development Department - The World Bank)
    Abstract: This paper analyses the potential impacts of introducing unemployment insurance (UI) in middle income countries using the case of Malaysia, which today does not have such a system. The analysis is based on a job search model with unemployment and three employment sectors: formal and informal wage employment, and self employment. The parameters of the model are estimated to replicate the structure of the labor market in Malaysia in 2009 and the distribution of earnings for informal, formal and self employed workers. The results suggest that unemployment insurance would have only a modest negative effect on unemployment if benefits are not overly generous. The main effect would be a reallocation of labor from wage into self employment while increasing average wages in the formal and informal sectors.
    Keywords: Unemployment insurance, Informal sector, Self employment, Job search
    Date: 2013
  9. By: Collins, Sean; Gallagher, Emily
    Abstract: This paper measures credit risk in prime money market funds (MMFs), studies how such credit risk evolved in 2011-2012, and tests the efficacy of the Securities and Exchange Commission’s (SEC) January 2010 reforms. To accomplish this, we estimate the credit default swap premium (CDS) needed to insure each fund’s portfolio against credit losses. We also calculate by Monte Carlo the cost of insuring a fund against losses amounting to over 50 basis points. We find that credit risk of prime MMFs rose from June to December 2011 before receding in 2012. Contrary to common perceptions, this did not primarily reflect funds’ credit exposure to eurozone banks. Instead, credit risk in prime MMFs rose because of the deteriorating credit outlook of banks in the Asia-Pacific region. Finally, we find evidence that the SEC’s 2010 liquidity and weighted average life (WAL) requirements reduced the credit risk of prime MMFs.
    Keywords: Money market funds, credit risk, SEC, eurozone, CDS
    JEL: G01 G15 G18 G22 G23 G28
    Date: 2014–05–27
  10. By: Triulzi G. (UNU-MERIT)
    Abstract: Catching-up, leapfrogging and falling behind in terms of output and productivity in high-tech industries crucially depends on firms ability to keep pace with technological change. In fast changing industries todays specialization does not guarantee tomorrows success as changes in the technological trajectories reward and punish firms specialization patterns. This highlights the importance of studying the relationship between technology life cycle and specialization patterns of new and incumbent innovators. From an empirical point of view life cycles have been extensively analysed at the industry and product level but not so deeply at the technology one even though plenty of theoretical contributions exist. We define a methodology to describe the life cycle stages of the main technological paradigm within an industry and of the technological areas it is composed of. The methodology is based on the analysis of the age composition of the different areas and of the characteristics of their technological trajectories. We use the classification of the life cycle stages of the single areas to investigate specialization patterns of new and incumbent innovators. Our results show that up to the end of the 1990s firms from Taiwan, Korea and Singapore specialized mainly in areas at the later stages of their life cycles, whereas US and Japanese firms were comparatively better in younger areas. Specialization patterns changed in the beginning of the 2000s, when the Asian Tigers started to become comparatively stronger in emerging areas. Keywords Technology Life Cycle, Industry Life Cycle, Product Life Cycle, Specialization Patterns, Technological Paradigms, Technological Trajectories, Main Path Analysis, Catching-up, Semiconductors, Citation networks, Community Detection
    Keywords: Development Planning and Policy: General; Management of Technological Innovation and R&D; Technological Change: Choices and Consequences; Diffusion Processes; Technological Change: Government Policy;
    JEL: O20 O32 O33 O38
    Date: 2014
  11. By: Zhang, Liqing (Asian Development Bank Institute); Tao, Kunyu (Asian Development Bank Institute)
    Abstract: Despite the increasing recognition that the renminbi (RMB) may eventually become a key global currency, several important questions remain to be answered. This paper analyzes the benefits and costs of the RMB becoming an international currency. The benefits include reduced exchange risk, promotion of the development of the financial market, and expansion of firms in the People’s Republic of China. The costs include general costs, which complicate monetary policy and exchange rate policy, and several transitional risks. The study argues that the benefits of RMB internationalization should surpass the costs, particularly in the long run, and provides comprehensive policy choices for a sustainable process of RMB internationalization.
    Keywords: renminbi internationalization; financial development; transitional risks; international monetary system
    JEL: F31 F36 F42
    Date: 2014–05–23
  12. By: Moretti, Enrico
    Abstract: Urban areas tend to have much more productive labor and higher salaries than rural areas, and there are vast differences across urban areas. Areas with high salaries and high productivity tend to have employers that invest in much more research and development than areas with low salaries and low productivity. This paper addresses two questions. First, it discusses the causes of these vast geographical differences in wages, human capital, and innovation. The second part of the paper discusses regional economic development policies. The European Union has an even more ambitious program transferring its development funds to regions with below average incomes. Asian countries, especially China, have a variety of special economic zones, designed to attract foreign investment to specific areas. Such regional development policies, often called place-based economic policies, are effectively a form of welfare, targeting cities or regions, not individuals. While such policies are widespread, the economic logic behind them is rarely discussed and even less frequently understood. This paper clarifies when these policies are wasteful, when they are efficient, and who the expected winners and losers are. Understanding when government intervention makes sense and when it does not is a crucial first step in setting sound economic development policies. Local governments can certainly lay a foundation for economic development and create all the conditions necessary for a city's rebirth, including a business climate friendly to job creation.
    Keywords: Tertiary Education,Labor Markets,Labor Policies,Political Economy,Urban Slums Upgrading
    Date: 2014–05–01
  13. By: Stefano Giglio; Matteo Maggiori; Johannes Stroebel
    Abstract: We test for the existence of infinitely-lived bubbles in housing markets by directly measuring failures of the pricing condition requiring the present value of infinite-maturity payments to be zero. This condition is central to workhorse models of bubbles. In the U.K. and Singapore, property ownership takes the form of either leaseholds or freeholds. Leaseholds are finite-maturity ownership contracts with maturities often exceeding 700 years; freeholds are perpetual contracts. The price difference between long-maturity leaseholds and freeholds reflects the present value of the freehold after leasehold expiry, thus directly measuring the no-bubble condition. We find no evidence of infinitely-lived bubbles.
    JEL: E44 G02 G11 G12 R30 R31
    Date: 2014–05
  14. By: Lerner, Josh
    Abstract: Since the 2008-09 global financial crises, interest among policy makers in promoting innovative, ventures has exploded. The emerging great hubs of entrepreneurial activity, like Bangalore, Dubai, Shanghai, Silicon Valley, Singapore, and Tel Aviv, bear the unmistakable stamp of the public sector. Enlightened government intervention played a key role in each region's emergence. But for each effective government intervention, dozens, even hundreds, disappointed, with substantial public spending bearing no fruit. This paper sheds light on how governments can avoid mistakes in stimulating entrepreneurship. In recent decades, efforts have increased to provide the world's poorest with financing and other assistance to facilitate their entry into entrepreneurship or the growth of their small ventures. These are typically subsistence businesses offering services like snack preparation or clothing repair. Such businesses typically allow business owners and their families to get by, but little else. The public policy literature, along with academic studies of new ventures, often does not distinguish among the types of businesses being studied. The author will focus here exclusively on high-potential new ventures and the policies that enhance them. This choice, not intended to diminish the importance of efforts to boost microenterprises, reflects the complexity of the field: the dynamics and issues involving micro firmsare quite different from those of their high-potential counterparts. A substantial literature suggests that promising entrepreneurial firms can have a powerful effect in transforming industries and promoting innovation.
    Keywords: Microfinance,Debt Markets,Emerging Markets,Investment and Investment Climate,Small Scale Enterprise
    Date: 2014–05–01
  15. By: Mitsuhiro Okano (Asia Pacific Institute of Research)
    Abstract: In this paper, we show that how monetary policy should respond in the aftermath of a rare but large scale natural disaster such as typhoons and earthquakes, using simulation analysis from the view of New Keynesian perspective. Since the conditions for the simulation is different from previous studies, monetary tightening for inflation stabilization does not necessarily have better performance in the aftermath of a disaster shock.
    Keywords: monetary policynatural disaster
    JEL: E31 E32 E52 Q54
    Date: 2013–07

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